Tesla Motors Inc.: We Don't Compete With Electric Vehicles

Model S. Source: Tesla's official Twitter feed.

While Tesla's (NASDAQ: TSLA  ) Model S is often compared to other electric vehicles, or EVs, the company insists it doesn't compete in this category. While the assertion may raise eyebrows, it actually makes sense. Even more, the idea that Tesla isn't competing with EVs is a great point for the bullish case for Tesla stock.

Who does Tesla compete with, then?
"We don't compete with EVs," said Tesla vice president of corporate and business development Diarmuid O'Connel at the auto show in Detroit last week. The Model S "was designed to compete with other vehicles in its class such as the BMW 5 series or the Mercedes E-Class or S-Class," O'Connel said. Even now that it is going into China, the company doesn't see the Chinese electric-car maker BYD as a competitor.

For Tesla investors, this is good news. The market for cars in this class is very large. Here are the 2013 global sales for each of the three models O'Connel alluded to:

  • BMW 5 Series: 366,992 
  • Mercedes-Benz E-Class: 242,562 
  • Mercedes-Benz S-Class: The "best-selling luxury sedan in the world," according to a Mercedes-Benz press release. 

If Tesla's addressable market were just EVs, investors couldn't expect the rapid growth its stock is priced for. There have only been a bit over 200,000 EVs sold globally -- ever.

But Tesla's belief that it doesn't compete with other EVs goes further than the fact that it doesn't view current EV models as direct competition; chances are Tesla wouldn't feel threatened if a manufacturer did launch an electric vehicle in the same space. Tesla CEO Elon Musk told CNNMoney in April that he hopes Tesla is surrounded by electric cars from other manufacturers in the future. More electric cars on the road, he reasons, would accelerate the advent of mass adoption of electric vehicles.

"I really look forward to the day when every car on the road is electric. That's the goal," Musk told CNN Money. It's this desire that's key for Tesla investors to understand. Tesla is essentially positioned to actually benefit from competition from EVs, thus lowering the risk for Tesla's growth trajectory to disappoint in the future.

Where are EVs headed?
If Tesla doesn't compete with EVs, and the arrival of EVs essentially benefits Tesla's potential, then Tesla's opportunity can be somewhat aligned with macro expectations for EVs. But expecting Tesla to only grow in line with the EV market might also be underestimating Tesla's potential, since Tesla has proven to effectively compete with non-EVs, too. In Tesla's very first full year of Model S sales, for instance, the company snapped up more than 8% of the luxury passenger-car sales in the U.S. Imagine if the same effect occurs when Tesla launches its affordable car in 2016 or 2017. 

So these assumptions bring us to the question: Where do you think EVs are headed? If you think they will take a meaningful share of the future automotive market, Tesla is probably an excellent holding for your portfolio -- even with a $21.8 billion market capitalization.

Not so bullish on EVs? Tesla stock probably isn't your best bet, then.

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Read/Post Comments (16) | Recommend This Article (2)

Comments from our Foolish Readers

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  • Report this Comment On January 26, 2014, at 8:46 AM, kca124cain wrote:

    If they want to compete with highway cars, they need to start producing highway cars. The S is a very luxurious city car. That is a good niche for electric.

    When you are doing highway driving, the last thing you want to have to do is to stop twice as often and have those stops take 30 minutes to an hour. And you do not want to have to plan your trip based on specific refueling locations.

    I drive Louisville to Denver quite often. It takes me 16.5 hours driving around the speed limit and stopping for gas 2 to 3 times. In a Tesla, it would take a total of around 30 hours due to rerouting, and stops.

  • Report this Comment On January 26, 2014, at 8:54 AM, duuude1 wrote:

    For your very specific case, kca124cain, I agree that you should stick with the old tech.

    The expansion of the charger network is still early, and a few cases like yours are sure to dissuade a few buyers. But it's clear from the sales demand Tesla has now, that many people comparing Tesla with other luxury brands are opting to buy the Tesla.

    When Tesla gets to my price range - I expect an even larger charger network - and in any case will be buying because I'm used to charging a number of devices overnight and a car will be no different.

    Duuude1

  • Report this Comment On January 26, 2014, at 2:24 PM, deeageaux wrote:

    In 1905, two years after Ford introduced the Model A, there were more stables to feed and water your horse than gas stations. It was more convenient to use a horse carriage to travel long distances than a gasoline motor car. Right at this very moment it is more convenient to charge your Model S at home than to gas up you ICE car.

    For long distance travel ICE cars are more convenient FOR NOW. But the die is cast.

  • Report this Comment On January 26, 2014, at 2:57 PM, CrazyDocAl wrote:

    Tesla has it's own segment. Quite frankly I know of nobody would would think about including a Tesla S in their list of luxury cars. Merc, BMW, Audi, Lexus, Infiniti, sure, Range Rover, Jag, why not, but not Tesla. The car is selling well in Rich CA communities. The rest of the country isn't really all that impressed with the car.

    Most people who buy a luxury car can't be bothered with charging and waiting. They want to turn the key and go. They do not want to do the math of do I have enough charge. Tesla would be served well if they came up with a floor charger that would automatically connect when the car was parked over it.

  • Report this Comment On January 26, 2014, at 5:42 PM, drax7 wrote:

    Tesla gets free highway charges, go ahead spend on gasoline if you are do inclined.

    Free energy is the equivalent if free beer on campus.

  • Report this Comment On January 26, 2014, at 8:40 PM, nowandthenreader wrote:

    here comes hydrogen, bye bye tesla.

  • Report this Comment On January 26, 2014, at 10:00 PM, Capt601 wrote:

    Kca124cain.

    Before you try putting down EV's, think about a couple of things. Can you do it for free in your ICE? Didn't think so. And how much does that drive cost you. 3 fuel stops each way ( probably realisticly 1 or 2 more) at $70 a stop. So 420 minimum round trip. Guess what, they have these new things that fly in the air now. I know, amazing to think. But you most likely can get an airfare for less than 420 and make the trip in a quarter of the time you do driving.

    People always try to make excuses for ICE cars. An EV will work, it just takes using your brain. And a couple extra stops for 30-1 hour is actually good for you and safer for others driving on the road with you.

  • Report this Comment On January 27, 2014, at 4:07 AM, danwat1234 wrote:

    nowandthenreader, hydrogen will never ever take off. Needs capturing of Hydrogen (energy use there), needs big infrastructure, trucks to truck it to the stations (and influenced by big oil) or big infrastructure similar to natural gas lines, then you have losses in the car's fuel cells, converting it to electricity to guess what, power the electric drivetrain in that hydrogen car.

    Electric with a little gas generator is good for now and eventually when battery tech gets better, no need for the engine.

  • Report this Comment On January 27, 2014, at 11:27 AM, Beckler wrote:

    Capt601, interesting I was about to mention the same thing. Sitting for long periods is very bad for your health and also your mind needs rest from constant concentration (though that issue will go away in maybe 5-10 yrs with autonomous vehicles). So using Supercharges forces you to take probably just the right amount of rest stops. Is that actually a bad thing when you think about it? No. You can endanger your own life at will but not those of other motorists due to fatigue. Also power levels will increase at superchargers over time, decreasing charge times.

  • Report this Comment On January 27, 2014, at 3:43 PM, Cornan wrote:

    To CrazyDocAl:

    Here in the Washington state, particularly in Kirkland where I live I see Model S by the dozens. I will test drive one on Sunday.

    By the way, I am a BMW owner, former Audi owner.

    This Model S car is simply exceptional. Compare it to an Audi S7; features and accessories like electric seats and other minor items that are already in the M5's and Audis are being integrated. But we are early adopters of a remarkable vehicle.

  • Report this Comment On January 27, 2014, at 3:46 PM, Cornan wrote:

    Another thing I want to add:

    Those of us making more than US$150K and who can afford a Model S should be smarter. Let's not let name badges fool us. I am impressed by the quality work Tesla has been able to deliver in the first iteration of this car. Minor accessories or features like folding mirrors, etc are making progress as we speak, but the ergonomics, quality of the vehicle is remarkable for a company which as been commercial cars for less than 3 years.

  • Report this Comment On January 28, 2014, at 12:55 AM, evowner wrote:

    Ok, I have worked in the EV industry some years ago. I have owned Mercedes and Lexus. Last year it was time to dump the Mercedes and I chose the Tesla S. After 3 months I can tell you it is an awesome car. Perhaps not perfect but closer than anything else I have driven. Sure it won't do the long road trip that I need to do once a year. (I still have my wife's Lexus for that). But I can tell you that in my opinion the build quality is on par with Mercedes, (it even has a lot of Mercedes parts in it, don't believe me, check the steering wheels) and superior to my Lexus. For the 99% of the driving I do, the range is more than adequate. I never experience range anxiety because frankly I rarely drive more than 400km in a day. I'm sure there are plenty that do but for those that don't drive for hours and hours each day, the car is AWESOME.

  • Report this Comment On January 28, 2014, at 12:58 AM, evowner wrote:

    Follow up comment for those worried about how long it takes to charge. I never need to consider it. I just plug it in when I get home and the car is always full when I go to work. Can't say my Mercedes was that easy to fill.

  • Report this Comment On January 28, 2014, at 9:41 PM, JulianCox wrote:

    "here comes hydrogen, bye bye tesla."

    Uh no.

    There are those excited by selling the idea of hydrogen to displace EVs.

    There is nobody interested in actually buying a slow and pointless FCV that offers no relief from pain at the pump.

    Added to which nobody could be stupid enough to believe that the fossil fuel industry playing "hide the exhaust pipe" and selling energy depleted Nat Gas is somehow a good idea on any basis.

  • Report this Comment On January 30, 2014, at 6:11 PM, Jim5437532 wrote:

    Tesla is poorly designed compared to several other EVs.

    It seems so far none of the Chevy Volts, Nissan Leafs, or Toyotas Rav4EV sold to customers have had their batteries catch fire after running over road debris or being in accidents. 2 Tesla S have caught fire after hitting road debris and 1 Tesla S caught fire and exploded after an accident.

  • Report this Comment On January 30, 2014, at 6:30 PM, Jim5437532 wrote:

    @ JulianCox

    Like Tesla and Elon Musk, much of your thinking is flawed and you are not forward thinking. The amount of energy that society uses could be sustained on natural gas because it renews naturally. Providing we can find a practical way of extracting methane ice. Hydrogen can be extracted from water and air. Using catalysts, it might be possible to cheaply and energy efficiently produce hydrogen.

    http://www.sciencedaily.com/releases/2013/12/131213093310.ht...

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